SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission file number 0-4217
ACETO CORPORATION
(Exact name of registrant as specified in its charter)
New York 11-1720520
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Hollow Lane, Lake Success, NY 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 627-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
(Title of Class)
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d)of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No____
Indicate the number of shares outstanding of each of the
issuer's class of common stock, as of the close of the
period covered by this report.
Common Stock - 4,837,390
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Nine Months Ended
March 31st
1997 1996
Net sales $122,396 $139,901
Cost of sales 107,273 121,693
Gross profit 15,123 18,208
Selling, general and administrative
expenses 9,806 10,104
Operating profit 5,317 8,104
Other income net of interest expense 1,644 1,091
Income before income taxes 6,961 9,195
Provision for income taxes 2,713 3,576
Net income $ 4,248 $ 5,619
Net income per common and common
equivalent share: $ 0.84 $ 1.05
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For Three Months Ended
March 31st
1997 1996
Net sales $ 47,361 $ 52,218
Cost of sales 41,549 45,365
Gross profit 5,812 6,853
Selling, general and administrative
expenses 3,192 3,396
Operating profit 2,620 3,457
Other income net of interest expense 686 304
Income before income taxes 3,306 3,761
Provision for income taxes 1,231 1,468
Net income $ 2,075 $ 2,293
Net income per common and
common equivalent share $ 0.42 $ 0.43
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Mar. 31st June 30th
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 6,758 $ 5,380
Short-term investments 11,268 10,595
Receivables:
Trade, less allowance for doubtful accounts:
(March $250; June $207) 28,724 24,739
Other 1,883 590
30,607 25,329
Inventories 26,359 30,156
Prepaid expenses 57 104
Deferred income tax benefit 919 1,125
Property held for sale 517 595
Total current assets 76,485 73,284
Long-term investments 12,198 12,737
Long-term notes receivable 941 790
Equipment at cost 1,346 1,346
Less accumulated depreciation and
amortization 1,080 1,046
266 300
Other assets 191 191
Total assets $ 90,081 $87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
Mar.31st June 30th
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts and acceptances payable $ 408 $ 1,002
Current installments on long-term debt 500 250
Accounts payable 6,595 3,047
Accrued merchandise purchases 12,228 11,202
Accrued compensation 3,361 3,330
Accrued environmental liabilities (note 6) 1,424 790
Other accrued expenses 1,728 2,055
Income taxes payable 790 701
Total current liabilities 27,034 22,377
Long-term debt, excluding current installments 500 1,000
Deferred income taxes 14 14
Redeemable preferred stock 750 750
Shareholders' equity (note 2):
Common stock,$.01 par value per share;
Authorized 10,000 shares;
Issued: Mar., 6,001 shares; June, 60 60
6,001 shares; outstanding: Mar.,
4,837 shares; June, 5,188 shares
Capital in excess of par value 57,377 57,387
Retained earnings 19,972 16,646
77,409 74,093
Less:
Cost of common stock held in treasury;
March, 1,164 shares; June, 813 shares 15,626 10,932
Total shareholders' equity 61,783 63,161
Total liabilities and shareholders' equity $ 90,081 $ 87,302
See accompanying notes to condensed consolidated financial statements.
ACETO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
Mar. 31st.
1997 1996
Operating activities:
Net income $ 4,248 $ 5,619
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 130 199
Gain on sale of assets (198) -
Effect of market value over original
option price for options exercised 33 118
Increase in allowance for doubtful accounts 43 23
Changes in operating assets and liabilities:
Decrease in investments - trading securities 50 2,868
Increase in trade accounts receivable (4,028) (6,977)
Decrease(increase)in other receivables (1,293) 956
Decrease in inventories 3,797 3,556
Decrease in prepaid expenses 47 89
Decrease(increase)in notes receivable (151) 22
Decrease in deferred tax benefit 206 151
Decrease in drafts and acceptances payable (594) (138)
Increase in current installments on long-term
debt 250 250
Increase in accounts payable 3,548 3,783
Increase in accrued compensation 31 336
Increase(decrease)in accrued merchandise
purchases 1,026 (3,027)
Increase(decrease)in environmental liabilities 634 (126)
Decrease in other accrued expenses (327) (350)
Increase(decrease)in current taxes payable 89 (251)
Net cash provided by operating activities 7,541 7,101
Investing activities:
Purchases of investments - held-to-maturity (5,802) (4,081)
Proceeds from investments - held-to-maturity 5,619 2,769
Purchases of equipment (78) (42)
Proceeds from sale of property 258 -
Net cash used in investing activities (3) (1,354)
Financing activities:
Payments of long-term debt (500) (500)
Payments of cash dividends (922) (977)
Proceeds from exercise of stock options 97 159
Payments for purchases of treasury stock (4,835) (2,031)
Net cash used in financing activities (6,160) (3,349)
Net increase in cash and cash equivalents 1,378 2,398
Cash and cash equivalents at beginning of period 5,380 1,643
Cash and cash equivalents at end of period $ 6,758 $ 4,041
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except amounts and par value per share)
Note 1:
The consolidated balance sheet as of March 31, 1997 and the
consolidated statements of income and cash flows for the
nine months ended March 31, 1997 and 1996 have been prepared
in accordance with generally accepted accounting principles
by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows
for all periods presented have been made. Interim results
are not necessarily indicative of results expected for the
full year.
These financial statements do not include all disclosures
associated with annual statements. Accordingly, these
statements should be read in conjunction with the Company's
financial statements and notes thereto contained in the
Company's Form 10-K for the year ended June 30, 1996.
Note 2: Income per Common Share
Income per common and common equivalent share is determined
based on the weighted average number of common and common
equivalent shares outstanding. Weighted average common
shares outstanding for the quarters ended March 31, 1997 and
1996 were 4,941,000 and 5,277,000 and included common stock
equivalents of 43,000 and 73,000, respectively. Weighted
average common shares outstanding for the nine months ended
March 31, 1997 and 1996, were 5,035,000 and 5,304,000 and
included common stock equivalents of 48,000 and 58,000,
respectively. Shares issuable upon the assumed conversion
of preferred stock were excluded from the computations since
they were not dilutive during the three and nine month periods.
Note 3: Supplemental Cash Flow Information
Cash paid for interest and income taxes during the nine
months ended March 31, 1997 and 1996 are as follows:
1997 1996
Interest $ 85 $ 116
Income taxes 3,684 3,569
Note 4: Marketable Investment Securities
Investments at March 31, 1997 and 1996 consisted of U.S.
Treasury, corporate debt and equity securities, and
municipal obligations. The Company classifies its
investments as either trading or held-to-maturity
securities. Trading securities are bought and held
principally for the purpose of selling them in the short
term. Held-to-maturity are those securities in which the
Company has the ability and intent to hold until maturity.
Trading securities are recorded at their fair market value
and are classified as short-term investments. Unrealized
gains and losses on trading securities are included in
earnings. Dividend and interest income are recognized when
earned. Held-to-maturity securities are recorded at cost
and are adjusted for the amortization or accretion of
premiums or discounts over the life of the related security.
The cost of held-to-maturity securities approximates their
fair market value.
Short-term investments consisted of $2,816 and $2,866
trading securities and $8,452 and $7,729 held-to-maturity
securities at March 31, 1997 and June 30, 1996, respectively.
Note 5: Interest and Other Income
For Nine Months For Three Months
Ended Ended
March 31 March 31
1997 1996 1997 1996
Dividends $ 14 $ 9 $ 5 $ -
Interest on investments 1,281 1,097 443 347
Net gain (loss) on
investments 66 31 19 (25)
Miscellaneous other
income 368 70 245 16
$1,729 $1,207 $ 712 $ 338
Note 6: It is the Company's policy to accrue and charge
against earnings environmental cleanup costs at the time it
is determined that a liability has been incurred and the
amount of that liability can be reasonably estimated. On
October 11, 1996 the Company received a report from its
environmental consultant revising the estimate of the
ultimate cost of remediation at the site of its closed
Arsynco, Inc. manufacturing facility. As a result, the
Company accrued and charged to operations an additional
$800. As of March 31, 1997 the balance of the current
liability was $1,424.
During the nine months ended March 31, 1997, the Company
settled for $225 a complaint by the U.S. Department of
Justice sent to the Company on February 10, 1995. The
complaint alleged violation of the Resource Conservation and
Recovery Act (RCRA) by Pfaltz & Bauer, a then wholly owned
subsidiary located in Waterbury, CT. This subsidiary was
sold in June 1996.
Both of the above items were recorded in the first quarter
of fiscal June 30, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Company's ability to generate cash from operations is
considered adequate to cover both short-term and long-term
liquidity. At March 31, 1997 and June 30, 1996 cash and
short-term investments totaled $18.0 million and $16.0
million and working capital was $49.5 million and $50.9
million, respectively. In addition, the Company had liquid
long-term investments of $12.2 million at March 31, 1997 and
$12.7 million at June 30, 1996.
The total of cash and cash equivalents, short-term and long-
term investments increased to $30.2 million at March 31,
1997 from $28.7 million at June 30, 1996. Although cash
provided by operating activities for the nine months ended
March 31, 1997 totaled $7.5 million, it was mostly offset by
cash used in financing activities for the purchase of
364,000 shares of treasury stock at a cost of $4.8 million,
cash dividends paid of $900,000 and a reduction of long-term
debt of $500,000.
The increase in total receivables to $30.6 million at March
31, 1997 from $25.3 million at June 30, 1996 and the
decrease in inventory to $26.4 million at March 31, 1997
from $30.2 million at June 30, 1996 can be attributed to
higher sales during the month ended March 31, 1997 compared
to June 30, 1996. The increase in total drafts payable,
accounts payable and accrued merchandise purchases to $19.2
million at March 31, 1997 from $15.3 million at June 30,
1996 is due primarily to the timing of merchandise
purchases. An increase in the accrued environmental
liability to $1,424,000 at March 31, 1997 from $790,000 at
June 30, 1996 was the result of an additional $800,000 in
the amount accrued for environmental remediation which was
offset slightly by remediation payments. The decrease in
other accrued expenses to $1.7 million at March 31, 1997
compared to $2.1 million at June 30, 1996 related to the
timing of payments.
RESULTS OF OPERATIONS:
Net sales decreased by 13% and 6% for the nine and three
months ended March 31, 1997 compared with the same periods
last year. Lower sales of bulk pharmaceuticals and
agricultural chemicals accounted for these decreases.
Volume decreased by 9% and 8% for the same periods. For the
nine month period, lower sales of bulk pharmaceuticals,
which tend to be higher priced, were the cause of the
greater decrease in sales than volume. For the three
months, the difference in the percent decrease between sales
and volume was not material.
Gross margins as a percentage of sales declined to 12.4% and
12.3% for the nine and three months ended March 31, 1997
from 13.0% and 13.1% for the same periods last year. The
decrease in both periods can be attributed to the
elimination of the relatively high gross profits from the
Company's Pfaltz & Bauer, Inc. subsidiary, which was sold on
June 19, 1996, as well as increased competition in the
dyestuff and pigment intermediates business.
Selling, general and administrative expenses for the nine
months ended March 31, 1997 decreased by $298,000 or 3%
compared to the same period last year. A decrease of
$525,000 in the amount accrued for additional compensation
and the elimination of selling, general and administrative
expenses of $1,070,000 from the aforementioned Pfaltz and
Bauer, Inc. subsidiary were partially offset by the increase
of $800,000 in the amount accrued for environmental
remediation as well as a $225,000 settlement of a complaint
by the U.S. Department of Justice. Other increases
included $114,000 in consulting fees and $97,000 in the cost
of medical insurance. Selling, general and administrative
expenses for the three months ended March 31, 1997 decreased
by $204,000, or 6%, compared to the same period last year.
During this period, the decrease in selling, general and
administrative expenses at Pfaltz & Bauer, Inc. accounted
for $415,000 which was offset by increased consulting fees
and medical insurance costs.
Other income increased to $1,729,000 and $712,000 for the
nine and three months ended March 31, 1997 from $1,207,000
and $338,000 for the same periods last year. In conjunction
with the aforementioned sale of a subsidiary, inventory was
transferred to the new ownership and the Company has
received and will continue to be entitled to a portion of
the proceeds of the sale of this inventory for a period of
up to three years. This totaled $135,000 and $45,000 for
the nine and three months ended March 31, 1997. The sale of
property during the quarter ended March 31, 1997 increased
other income by $198,000. Slightly higher cash balances
along with an increase in note and mortgage interest
accounted for a small increase in interest income.
The decrease in the effective tax rate for the three months
ended March 31, 1997 to 37.2% from 39.0% compared to the
same period last year was the result of the use of carryover
losses from certain subsidiaries and a slight tax over
accrual from the prior year. The effective tax rate for the
nine months ended March 31, 1997 and 1996 equaled 39% which
approximates the Company's traditional level.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ACETO CORPORATION
DATE May 2, 1997 BY (signed) / by Donald Horowitz
Donald Horowitz, Chief Financial
Officer
DATE May 2, 1997 BY (signed) / by Leonard S. Schwartz
Leonard S. Schwartz, President